Separations Revisited: Do Layoffs or Quits Drive Lower Separation Rates in High-Quality Firms?

Cauê Dobbin (), Daniel Fernandez () and Tom Zohar ()
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Cauê Dobbin: Georgetown University, https://www.georgetown.edu/
Daniel Fernandez: CEMFI, Centro de Estudios Monetarios y Financieros, https://www.cemfi.es/
Tom Zohar: CEMFI, Centro de Estudios Monetarios y Financieros, https://www.cemfi.es/

Working Papers from CEMFI

Abstract: We challenge the view that the negative correlation between firm quality and separation rates reflects efficient separations. Using Brazilian administrative data, we show that this correlation is driven by lower layoff rates at high-quality firms, not differences in quits. We develop a job search model where wage rigidity and productivity uncertainty generate inefficient layoffs. The model predicts that higherquality firms have larger markdowns and, consequently, fewer layoffs. Empirically, we validate this by showing that firms facing stronger wage rigidity have higher layoffs and a steeper quality-layoff correlation, and that markdowns are higher in better firms and negatively correlated with layoffs.

Keywords: Layoffs; wage rigidity; firm quality; separations; job stability; Brazil; markdowns. (search for similar items in EconPapers)
JEL-codes: E24 J31 J41 J63 J64 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-bec and nep-lab
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